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Re: SurfStitch Group Limited ACN 602 288 004

SurfStitch Holdings Pty Limited ACN 601 114 603 (A wholly owned subsidiary of SGL) (each Subject to Deed of Company Arrangement) (Collectively “the Companies”)

On 18 April 2018, SurfStitch Group Limited (“SGL”) and SurfStitch Holdings Pty Limited (“SHPL”) both executed separate Deeds of Company Arrangements (“SGL DOCA” and “SHPL DOCA” respectively, together “DOCAs”) and John Park, Quentin Olde and myself, Joseph Hansell, were appointed Deed Administrators.

INFORMATION REQUIRED BY FORM 5602 ANNUAL ADMINISTRATION RETURN

Further to our ASX announcement on 18 March 2019, we attach the financial information that ASIC requires us to disclose as a condition of extending the time to hold the 2018 AGM.

The disclosed information is for the period 18 April 2018 to 25 February 2019 inclusive. Should you have any queries, please contact this office on (07) 3225 4900 or

surfstitch_enquiries@fticonsulting.com.

Yours faithfully

The Companies

Joseph Hansell

Deed Administrator

Enc.

Annual administration return

Liquidator details

Registered liquidator number

479192

Registered liquidator name

JOSEPH RONALD HANSELL

Company details

Company name

Surfstitch Group Limited

ACN/ABN

602 288 004

1 Details of appointment

Date you first began to be an external administrator of the company

18-04-2018

Period covered by the annual return

18-04-2018 to 25-02-2019

Type of appointment

Deed administrator

Details of the appointee(s)

Date of appointment

18-04-2018

Name

PARK JOHN RICHARD

Address

‘FTI CONSULTING’ LEVEL 20 345

QUEEN STREET BRISBANE QLD 4000

AUSTRALIA

Liquidator number

196558

Date of appointment

18-04-2018

Name

OLDE QUENTIN JAMES

Address

LEVEL 15 50 PITT STREET SYDNEY NSW

2000 AUSTRALIA

Liquidator number

277099

Date of appointment

18-04-2018

Name

HANSELL JOSEPH RONALD

Address

LEVEL 15 50 PITT STREET SYDNEY NSW

2000 AUSTRALIA

Liquidator number

479192

2 Details of assets

State your estimate of the future gross value of the company’s assets realisations?

Low High
Gross realisations to date $3,265,972.00 $3,265,972.00
Future realisations $1,688,053.00 $2,058,053.00
Estimated total realisations $4,954,025.00 $5,324,025.00

3 Details of remuneration

Type of appointment Amount of

Remuneration paid to Disbursements paid to

remuneration determined/fixed by creditors, committee or court (inc. GST)

date (inc. GST)

date (inc. GST)

Administrator $1,304,608.00 $1,281,279.00 $55,301.00

Deed administrator $547,800.00 $291,506.00 $2,436.00

4 Details of liabilities

Your estimate of creditors in this administration at the date of this return

Category

Priority – Wages & Super incl SGC

Estimated number of creditors

3

Estimated value

$17,867.26

Priority – Leave of absence 0 $0.00
Priority – Retrenchment 0 $0.00
Secured 0 $0.00
Unsecured 19 $1,007,580.15
Deferred 3000 $85,000,000.00

Note: Claims exclude the impact of dividends paid to date.

5 Summary receipts and payments

Receipts:

Total amounts you received before the period of this return $0.00

Total amounts you received during the period of this return $6,635,072.56

——————————- Total receipts $6,635,072.56

Payments:

Total amounts you paid before the period of this return $0.00

Total amounts you paid during the period of this return $4,209,591.68

——————————- Total payments $4,209,591.68

Cash at bank at the period end for this return $2,425,480.88

6 Payments under Fair entitlement guarantee scheme

What is the amount paid during the period to employees under the Fair entitlement guarantee scheme or GEERS?

Wages $0.00
Leave of absence $0.00
Retrenchment $0.00

7 Details of dividends

Estimate of dividends to be paid and actual since your appointment and to the date of this account

Category Current estimate of total rate of dividend

Cumulative rate of dividend paid

Total paid

Priority – Wages & Super incl SGC 100.00100.00$17,867.26

Unsecured 100.0098.83$995,885.28

8 Completion

Estimated completion date

06/2021

Details of causes which may delay the termination of your appointment

Future asset realisations

Receive dividend from the DOCA of Surfstitch Holdings Pty Ltd (Subject to

Deed of Company Arrangement)

Litigation

Settlement Approval of Class Actions

Payment of dividend

Adjudication of Subordinated Creditor claims and payment of dividend to

Subordinated Creditors (if available).

Authentication

This form has been authenticated by

Name JOSEPH RONALD HANSELL

This form has been submitted by

Name

Date

For more help or information

Web www.asic.gov.au

Ask a question? www.asic.gov.au/question

Telephone 1300 300 630

Annexure A – Summary of receipts and payments

Summary account of receipts & payments for 12 month period from 18-04-2018 to 25-02-2019

Total receipts for prior periods brought forward $0.00

Receipts Amount

Bank Charges $40.00

Cash at Bank (Coupon Select) $852,906.16

Cash at Bank (Westpac – Prem) $192,477.42

Cash at Bank (Westpac) $293,534.84

Fixed Rate Term Deposit #1 $350,539.45

Fixed Rate Term Deposit #2 $50,000.00

Group Trapped Cash $1,249,737.27

GST Control: GST Paid (Received) $267,808.00

Insurance Claims $148,952.21

Intercompany Loan Accounts $1,500,000.00

Intercompany Loan Accounts: MTC $85,930.93

Interest Income $8,461.29

PAYG Control (Non-Trading): PAYG Paid (Received) -$6,164.00

Statutory Fees $3,408.00

Statutory Interest Repaid $854.04

Suspense $110,251.02

Working Capital Adjustment $1,526,335.93

——————————- Total receipts for the current period $6,635,072.56

——————————- Total receipts from commencement to the end of the report $6,635,072.56

Total payments for prior periods brought forward $0.00

Payments Amount

Appointee Disbursements $10,079.33

Bank Charges $100.00

Fees: Appointee Fees $548,066.09

Group Trapped Cash $1,253,445.61

IT Expense $2,247.52

Legal Fees $893,716.89

Motor Vehicle Expenses $552.25

PAYG Control (Non-Trading): PAYG Withheld (Priority Dividend) -$6,164.00

Payroll Processing $591.64

Priority Creditors (Employees and SGC): Wages $17,867.26

Registry Services $120,852.47

Statutory Fees $32,256.93

Statutory Interest $1,241.41

Statutory Interest $69,193.56

Subcontractor $153,698.42

Superannuation Control (Non-Trading): Superannuation Paid (Received) $3,207.72

Suspense $110,251.02

Unsecured Creditors $981,582.52

Unsecured Creditors: Employees $14,302.76

Virtual Data Room Fees $2,502.28

——————————- Total payments for the current period $4,209,591.68

——————————- Total payments from commencement to the end of the report $4,209,591.68

Balance in hand

Bank Accounts $2,425,480.88

Annexure B – Detailed receipts and payments

Account of receipts and payments for the period – 18-04-2018 to 25-02-2019

Surfstitch Group Limited

Receipts
Date Receipts from Amount
Bank Charges
01-05-2018 Westpac Banking Corporation $10.00
01-06-2018 Westpac Banking Corporation $10.00
02-07-2018 Westpac Banking Corporation $10.00
03-09-2018 Westpac Banking Corporation $10.00
——————————-

Total Bank Charges : $40.00

Cash at Bank (Coupon Select)

18-04-2018 Transfer from Administrator $852,906.16

——————————-

Total Cash at Bank (Coupon Select) : $852,906.16

Cash at Bank (Westpac – Prem)

18-04-2018 Transfer from Administrator $192,477.42

——————————-

Total Cash at Bank (Westpac – Prem) : $192,477.42

Cash at Bank (Westpac)

18-04-2018 Transfer from Administrator $293,534.84

——————————-

Total Cash at Bank (Westpac) : $293,534.84

Fixed Rate Term Deposit #1

18-04-2018 Transfer from Administrator $350,539.45

——————————-

Total Fixed Rate Term Deposit #1 : $350,539.45

Fixed Rate Term Deposit #2

18-04-2018 Transfer from Administrator $50,000.00

——————————-

Total Fixed Rate Term Deposit #2 : $50,000.00

Group Trapped Cash

24-05-2018 Surfstitch Pty Ltd $1,249,737.27

——————————-

Total Group Trapped Cash : $1,249,737.27

GST Control: GST Paid (Received)

10-05-2018 Australian Taxation Office $37,956.00

06-12-2018 Australian Taxation Office $86,868.00

06-12-2018 Australian Taxation Office $44,602.00

06-12-2018 Australian Taxation Office $98,382.00

——————————-

Total GST Control: GST Paid (Received) : $267,808.00

Insurance Claims

22-06-2018 Chubb Insurance Company of Australia $148,952.21

——————————-

Total Insurance Claims : $148,952.21

Intercompany Loan Accounts

04-07-2018 Surfstitch Holdings Pty Limited $1,500,000.00

——————————-

Total Intercompany Loan Accounts : $1,500,000.00

Intercompany Loan Accounts: MTC

14-05-2018 MetCentral Limited $85,930.93

——————————-

Total Intercompany Loan Accounts: MTC : $85,930.93

Interest Income
30-04-2018 Westpac Banking Corporation $465.95
23-05-2018 Westpac Banking Corporation $1.21
11-07-2018 Westpac Banking Corporation $6,534.45
06-12-2018 Australian Taxation Office $571.98
06-12-2018 Australian Taxation Office $887.70
——————————-

Total Interest Income : $8,461.29

PAYG Control (Non-Trading): PAYG Paid (Received)

06-12-2018 Australian Taxation Office -$6,164.00

——————————-

Total PAYG Control (Non-Trading): PAYG Paid (Received) : -$6,164.00

Statutory Fees

23-01-2019 ASIC $3,408.00

——————————-

Total Statutory Fees : $3,408.00

Statutory Interest Repaid

20-12-2018 Australian Taxation Office $854.04

——————————-

Total Statutory Interest Repaid : $854.04

Suspense

27-04-2018 FTI Consulting (Strategic Communications) $1,217.92

27-04-2018 FTI Consulting (Strategic Communications) $109,033.10

——————————-

Total Suspense : $110,251.02

Working Capital Adjustment

30-05-2018 Surfstitch Pty Ltd $631,199.62

30-05-2018 Surfstitch Pty Ltd $849,699.80

30-05-2018 Surfstitch Pty Ltd $45,436.51

——————————-

Total Working Capital Adjustment : $1,526,335.93

——————————-

Total Receipts $6,635,072.56

Payments

Date Payments to Amount

Appointee Disbursements

22-05-2018 FTI Consulting $4,178.46

24-05-2018 FTI Consulting $3,465.30

24-07-2018 FTI Consulting $330.03

21-08-2018 FTI Consulting $1,317.79

22-10-2018 FTI Consulting $474.15

31-01-2019 FTI Consulting $313.60

——————————-

Total Appointee Disbursements : $10,079.33

Bank Charges
01-05-2018 Westpac Banking Corporation $20.00
01-06-2018 Westpac Banking Corporation $10.00
02-07-2018 Westpac Banking Corporation $10.00
03-09-2018 Westpac Banking Corporation $10.00
01-10-2018 Westpac Banking Corporation $10.00
01-11-2018 Westpac Banking Corporation $10.00
03-12-2018 Westpac Banking Corporation $10.00
02-01-2019 Westpac Banking Corporation $10.00
01-02-2019 Westpac Banking Corporation $10.00
——————————-

Total Bank Charges : $100.00

Fees: Appointee Fees

22-05-2018 FTI Consulting $191,660.58

24-05-2018 FTI Consulting $64,900.00

24-07-2018 FTI Consulting $75,353.85

21-08-2018 FTI Consulting $105,743.55

22-10-2018 FTI Consulting $58,795.56

26-10-2018 FTI Consulting $962.50

31-01-2019 FTI Consulting $50,650.05

——————————-

Total Fees: Appointee Fees : $548,066.09

Group Trapped Cash

24-05-2018 Surfstitch Pty Ltd $350,539.45

24-05-2018 Surfstitch Pty Ltd $50,000.00

24-05-2018 Surfstitch Pty Ltd $852,906.16

——————————-

Total Group Trapped Cash : $1,253,445.61

IT Expense
19-04-2018 Rush Hour Creative Solutions $935.85
31-07-2018 Rush Hour Creative Solutions $327.92
31-07-2018 Rush Hour Creative Solutions $983.75
——————————-

Total IT Expense : $2,247.52

Legal Fees
24-05-2018 King & Wood Mallesons $202,764.10
24-05-2018 King & Wood Mallesons $55.15
24-05-2018 King & Wood Mallesons $161,839.48
24-05-2018 King & Wood Mallesons $4,452.04
24-05-2018 King & Wood Mallesons $30.00
13-06-2018 King & Wood Mallesons $131,420.85
13-06-2018 King & Wood Mallesons $3,715.15
13-06-2018 King & Wood Mallesons $850.00
06-07-2018 King & Wood Mallesons $32,324.05

06-07-2018 Bridges Lawyers $6,379.45

06-07-2018 King & Wood Mallesons $61.95

08-08-2018 King & Wood Mallesons $113,428.15

08-08-2018 King & Wood Mallesons $15,733.18

08-08-2018 King & Wood Mallesons $510.24

09-08-2018 King & Wood Mallesons $35,567.40

09-08-2018 King & Wood Mallesons $1,057.43

09-08-2018 King & Wood Mallesons $155.00

11-09-2018 King & Wood Mallesons $32,733.25

11-09-2018 King & Wood Mallesons $4,182.96

11-09-2018 King & Wood Mallesons $531.72

11-10-2018 King & Wood Mallesons $45,676.95

11-10-2018 King & Wood Mallesons $16,796.14

08-11-2018 King & Wood Mallesons $35,695.55

08-11-2018 King & Wood Mallesons $27.91

19-12-2018 King & Wood Mallesons $26,360.95

19-12-2018 King & Wood Mallesons $21,367.84

——————————-

Total Legal Fees : $893,716.89

Motor Vehicle Expenses

31-07-2018 Northern Beaches Council $552.25

——————————-

Total Motor Vehicle Expenses : $552.25

PAYG Control (Non-Trading): PAYG Withheld (Priority Dividend)

06-07-2018 Suppressed -$2,534.00

06-07-2018 Suppressed -$1,612.00

06-07-2018 Suppressed -$2,018.00

——————————-

Total PAYG Control (Non-Trading): PAYG Withheld (Priority Dividend) : -$6,164.00

Payroll Processing

07-05-2018 Aussiepay Australian Payroll Professionals $136.24

13-08-2018 Aussiepay Australian Payroll Professionals $455.40

——————————-

Total Payroll Processing : $591.64

Priority Creditors (Employees and SGC): Wages

06-07-2018 Suppressed $7,346.00

06-07-2018 Suppressed $4,673.00

06-07-2018 Suppressed $5,848.26

——————————-

Total Priority Creditors (Employees and SGC): Wages : $17,867.26

Registry Services

09-05-2018 Link Market Services Ltd $68,963.90

24-05-2018 Link Market Services Ltd $5,495.58

06-07-2018 Link Market Services Ltd $1,034.00

31-07-2018 Link Market Services Ltd $19,341.63

08-08-2018 Link Market Services Ltd $6,984.45

11-09-2018 Link Market Services Ltd $1,501.50

11-09-2018 Link Market Services Ltd $9,049.66

11-10-2018 Link Market Services Ltd $6,917.00

07-01-2019 Link Market Services Ltd $1,564.75

——————————-

Total Registry Services : $120,852.47

Statutory Fees
09-05-2018 ASX Operations Pty Ltd $6.93
07-06-2018 ASIC $39.00
08-08-2018 ASX Operations Pty Ltd $27,500.00
07-01-2019 ASIC $3,487.00
07-01-2019 ASIC $1,224.00
——————————-

Total Statutory Fees : $32,256.93

Statutory Interest

06-07-2018 Suppressed $510.40

06-07-2018 Suppressed $324.68

06-07-2018 Suppressed $406.33

——————————-

Total Statutory Interest : $1,241.41

Statutory Interest

06-07-2018 ASX Operations Pty Ltd $214.47

06-07-2018 BDO East Coast Partnership $76.43

06-07-2018 Citadel Magnus Pty Ltd $82.16

06-07-2018 Cols Property Maintenance $47.38

06-07-2018 Deputy Commissioner of Taxation $854.04

06-07-2018 Energy Australia $50.94

06-07-2018 Herbert Smith Freehills $34,870.15

06-07-2018 KPMG $9,671.12

06-07-2018 Link Administration Services Pty Limited $609.50

06-07-2018 Office of State Revenue QLD $122.02

06-07-2018 Pack & Send Bondi Junction $156.33

06-07-2018 Stephen Goddard $2,819.02

06-07-2018 Ms Abigail CHEADLE $813.44

06-07-2018 King & Wood Mallesons $16,895.85

06-07-2018 Lex PEDERSEN $106.88

06-07-2018 Russells Solicitors Law Practice Trust Account $1,623.53

06-07-2018 Mr Samuel WEISS $180.30

——————————-

Total Statutory Interest : $69,193.56

Subcontractor
26-04-2018 333 Capital Pty Ltd $110,000.00
07-06-2018 Veivers Consulting Pty Ltd $4,280.00
06-07-2018 Veivers Consulting Pty Ltd $6,648.75
06-07-2018 Veivers Consulting Pty Ltd $4,556.25
31-07-2018 Veivers Consulting Pty Ltd $5,332.50
08-08-2018 Veivers Consulting Pty Ltd $821.20
08-08-2018 Veivers Consulting Pty Ltd $132.34
21-08-2018 Veivers Consulting Pty Ltd $8,032.50
13-09-2018 Veivers Consulting Pty Ltd $2,126.25
11-10-2018 Veivers Consulting Pty Ltd $4,195.13
08-11-2018 Veivers Consulting Pty Ltd $1,410.75
19-12-2018 Veivers Consulting Pty Ltd $4,974.75
07-01-2019 Veivers Consulting Pty Ltd $1,188.00
——————————-

Total Subcontractor : $153,698.42

Superannuation Control (Non-Trading): Superannuation Paid (Received)

10-05-2018 ClickSuper Pty Limited $3,207.72

——————————-

Total Superannuation Control (Non-Trading): Superannuation Paid (Received) : $3,207.72

Suspense

01-06-2018 FTI Consulting $1,217.92

01-06-2018 FTI Consulting $109,033.10

——————————-

Total Suspense : $110,251.02

Unsecured Creditors

06-07-2018 ASX Operations Pty Ltd $3,086.77

06-07-2018 BDO East Coast Partnership $1,100.00

06-07-2018 Citadel Magnus Pty Ltd $1,182.50

06-07-2018 Cols Property Maintenance $682.00

06-07-2018 Deputy Commissioner of Taxation $12,292.00

06-07-2018 Energy Australia $733.14

06-07-2018 Herbert Smith Freehills $501,877.20

06-07-2018 KPMG $139,193.95

06-07-2018 Link Administration Services Pty Limited $8,772.36

06-07-2018 Office of State Revenue QLD $1,756.22

06-07-2018 Pack & Send Bondi Junction $2,250.00

06-07-2018 Stephen Goddard $40,573.43

06-07-2018 King & Wood Mallesons $243,177.64

06-07-2018 Lex PEDERSEN $1,538.27

06-07-2018 Russells Solicitors Law Practice Trust Account $23,367.04

——————————-

Total Unsecured Creditors : $981,582.52

Unsecured Creditors: Employees

06-07-2018 Ms Abigail CHEADLE $11,707.69

06-07-2018 Mr Samuel WEISS $2,595.07

——————————-

Total Unsecured Creditors: Employees : $14,302.76

Virtual Data Room Fees

09-05-2018 Ansarada Pty Ltd $1,272.72

09-05-2018 Ansarada Pty Ltd $1,229.56

——————————-

Total Virtual Data Room Fees : $2,502.28

——————————-

Total Payments $4,209,591.68

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RE:  SurfStitch Group Limited ACN 602 288 004

SurfStitch Holdings Pty Limited ACN 601 114 603 (A wholly owned subsidiary of SGL) (each Subject to Deed of Company Arrangement)(Collectively “the Companies”)

On 18 April 2018, SurfStitch Group Limited (“SGL”) and SurfStitch Holdings Pty Limited (“SHPL”) both executed separate Deeds of Company Arrangements (“SGL DOCA” and “SHPL DOCA” respectively, together “DOCAs”) and John Park, Quentin Olde and myself, Joseph Hansell, were appointed Deed Administrators.

Please refer to previous ASX announcements for further background relating to the Voluntary Administration and Deed of Company Arrangement of the Companies.  Unless otherwise defined, capitalised terms have the meaning given to them in the DOCAs.

Following on from our ASX announcement on 27 February 2019 advising shareholders as to the extension of time to hold the 2018 AGM, ASIC imposed a condition on the extension that within

14 business days of granting the extension, SGL must make an announcement to the ASX providing an update on the Deed of Company Arrangement and the information required by Form 5602

Annual Administration Return. In accordance with this condition, the purpose of this circular is to provide you with an update on the progress of the DOCAs.

The information required by Form 5602 Annual Administration Return will be provided by way of a separate announcement.

PAYMENT OF DIVIDEND TO PRIORITY EMPLOYEE AND ORDINARY CREDITORS OF SGL AND SHPL

Pursuant to the terms of the SGL DOCA and SHPL DOCA, the Deed Administrators have adjudicated on all priority employee and unsecured claims of SGL and SHPL that were the subject of proofs lodged on or prior to 1 June 2018.  On 6 July 2018, the Deed Administrators distributed dividends representing 100 cents in the dollar plus interest on all unrelated party, director and officer or former officer claims that were admitted to proof by that date.

Pending Settlement Approval under the SGL DOCA (refer to Class Action Update below), the Deed Administrators of the SGL DOCA have not yet called for proofs of debt from any potential creditor with a Subordinate Claim under the SGL DOCA.  The Deed Administrators of the SHPL DOCA have not yet made a distribution to SGL of its entitlements under the SHPL DOCA.

WINDING UP OF SUBSIDIARIES

Following the execution of the DOCAs, the Deed Administrators have also worked towards the winding up of various subsidiaries of SGL and repatriating funds (if any) back to SHPL. In this regard please find listed below the status of the respective companies:

 

Subsidiary

 

Trading Company/Brand

 

Status

 

Magicseaweed Limited

 

Magicseaweed

 

Pending voluntary dissolution

 

Metcentral Limited

 

Magicseaweed

 

Pending voluntary dissolution

 

Rollingyouth USA Inc

 

Stab Magazine

 

Fully dissolved

 

Rollingyouth Pty Ltd

 

Stab Magazine

 

Pending voluntary dissolution

 

Surfstitch Europe Pty Ltd

 

Dormant legacy entity

 

Pending voluntary dissolution

 

Surfsitch USA Inc

 

Swell

 

Pending involuntary dissolution

CLASS ACTION UPDATE

It is a condition precedent to effectuation of the SGL DOCA that Settlement Approval has occurred and remains in force.

Below is a summary of the steps that have been taken since execution of the SGL DOCA in the Class Actions, including to seek to give effect to Settlement Approval in respect of the Class Actions.  The Court has ordered a mediation of the Class Actions to occur before the end of May 2019.

Date Event
April – August 2018 • The Deed Administrators respond to Notices to Produce issued by the plaintiffs in the Class Actions.
July 2018 • The plaintiffs in the Class Actions filed motions seeking orders to approve settlement of the Class Actions (“Plaintiffs’ Motions”).  The Deed Administrators raised issues with the orders sought in the Plaintiffs’ Motions.
• The Court appointed Mr Guy Donnellan contradictor in respect of the Plaintiffs’ Motions.
• The parties were ordered by the Court to provide notice to group members regarding the Plaintiffs’ Motions.
• Notice of Plaintiffs’ Motions to group members approved by the Court.
• Deed Administrators filed and serve notices of a constitutional matter in respect of orders sought in the Plaintiffs’ Motions.
August 2018 •  Court-ordered  notice  sent  to  group  members  in  relation  to  the Plaintiffs’ Motions.
• The plaintiffs filed amended notices of motion seeking orders to approve settlement of the Class Actions (“Plaintiffs’ Amended Motions”).
September 2018 • Court-ordered notice sent to group members in relation to plaintiffs’ estimate of costs.
• Court-ordered notice sent to group members in relation to Deed Administrators’ estimate of the effect of orders sought in Plaintiffs’ Amended Motions compared to the fund available to group members in a winding-up.
• Plaintiffs, Deed Administrators and contradictor file evidence and submissions in relation to Plaintiffs’ Amended Motions.
• Plaintiffs filed submissions in reply.
• Class action funders granted leave to intervene and be separately represented in respect of Plaintiffs’ Amended Motions.
October 2018 • Directions hearing of both class actions in NSWSC. Date set for hearing in respect of preliminary orders sought in the Plaintiffs’ Amended Motions that opt-out be dispensed with and that group members who opt out be bound by any costs and common fund orders.
• Deed Administrators respond to funders’ Notice to Produce.
1-2 November 2018 • Hearing in relation to the preliminary orders sought in the Plaintiffs’ Amended Motions.
• Court holds that there is no power to dispense with opt-out.
December 2018 – present •  Discussions between the parties concerning the future conduct of the Class Actions and Settlement Approval.
•  On 8 March 2019, the Court ordered that SGL, Justin Cameron, Chubb Insurance Australia Limited, the plaintiffs and the funders mediate.

CONVERTIBLE NOTES AND EXIT EVENT

We refer to our announcement to the ASX on 17 April 2018 in respect of the sale of SurfStitch Pty Limited (“SSAU”).  In consideration for that sale, SHPL received Convertible Notes in a holding company, Alceon Retail HoldCo Pty Ltd ACN 625 287 738 (the “Issuer”) which owns EziBuy and SSAU. The Convertible Notes have a conversion period on the earlier of 3 years or on the occurrence of an Exit Event. An Exit Event being defined as an IPO, Trade Sale or Share Sale. The proportion of equity received by SHPL in the Issuer is based on a pre-determined formula on the respective performance of both businesses.  The equity allocation for SHPL could range from 5%-10% of the Issuer.

To date there has been no Exit Event triggering the conversion of the Convertible Notes held by SHPL.

Under the SHPL DOCA, the Deed Administrators of SHPL are required to distribute 80% of the Convertible Notes to the SGL Admitted Subordinate Claimants on a pari passu basis and 20% of the Convertible Notes to the SGL Shareholders on a pari passu basis by notifying the Issuer of the SGL Admitted Subordinate Claimants and SGL Shareholders and their proportionate entitlements to the Convertible Notes.  Other than their proportionate entitlements in respect of 20% of the Convertible Notes, the SGL Shareholders are unlikely to receive any distribution from the SGL Deed Fund.

We are seeking information from the Issuer in respect of its financial performance.

DEED ADMINISTRATORS’ REMAINING TASKS

The Deed Administrators are required to undertake the following tasks to effectuate the DOCAs:

  • seek to give effect to Settlement Approval;
  • distribute SHPL Deed Fund to SGL;
  • subject to any Court orders made in Settlement Approval, call for proofs of debt from potential creditors who assert a Subordinate Claim and distribute SGL Deed Fund in accordance with the SGL DOCA; and
  • Provide the Issuer with a list of SGL Admitted Subordinate Claimants and SGL Shareholders, including their proportionate entitlements, for purposes of issuing the Convertible Notes.

The Deed Administrators of SHPL and SGL will correspond directly with the potential creditors SGL who the records of SGL show may have a Subordinate Claim with respect to this process in due course.

Should you have any queries in the interim, please contact this office on (07) 3225 4900 or surfstitch_enquiries@fticonsulting.com.

Yours faithfully

The Companies

Joseph Hansell

Deed Administrator

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SurfStitch Settlement Approval

On 1st and 2nd November 2018 his Honour Justice Stevenson heard the McConnell and Nakali Plaintiffs’ applications for Settlement Approval in respect of the SurfStitch DoCA adopted at the creditors’ meeting on 4 April 2018.

In respect of that hearing, the Plaintiffs sought orders for the Court to dispense with Opt Out and for a Common Fund Order to be made, as per the Notice to Group Members posted on our home page dated 1 August 2018.
His Honour determined the Court does not have power to dispense with Opt Out, and in any event would not exercise the Court’s discretion to make a Common Fund Order.

The parties have since been engaging in commercial negotiations in respect of how the Settlement Approval should proceed, which has involved complex and ongoing legal arguments with the SurfStitch administrators.

Chubb Joinder
Separately, on 8 March 2019 the matter was listed for directions before his Honour Justice Hammerschlag, at which the McConnell Plaintiff filed a motion seeking leave of the Court to join as a third defendant Chubb Insurance Australia Limited (Chubb), the defendants’ Director’s & Officer’s Policy Liability insurer.

It is intended Chubb be joined, as it has not extended indemnity under its D&O Policy to SurfStitch or Mr Cameron. The Chubb insurance policy could expand the recovery pool to group member claimants.

The motion includes an Amended Commercial List Statement which now pleads the Plaintiff’s case against Chubb separately from SurfStitch and Mr Cameron. The Nakali Plaintiff simultaneously filed a similar motion in its proceeding seeking to join Chubb as the second defendant in that proceeding.

Accordingly, his Honour made orders, among others for:

1. Chubb to file any evidence in reply by 27 March and the Joinder Motion to be stood over to the 29 March 2019 in the Motions List;

2. the parties, Chubb and the litigation funders ILP and Vannin take part in a mediation to be convened by 31 May 2019 (Mediation);

3. the parties to notify the Court of the Mediation date by 31 March 2018;

4. SurfStitch, Mr Cameron and Chubb to provide the other mediation participants with position papers 14 days prior to the Mediation;

5. the costs of the Mediation to be shared between the parties and Chubb equally;

6. the Plaintiff’s Amended Settlement Approval motion dated 1 November 2018 (filed in Court on 8 March 2019) to be listed for hearing (administrative mention) on 29 March 2019 at 9:15 am.

7. Subject to further order, Mr Donnellan, the contradictor, be excused from further participation in the proceeding.

8. the parties have liberty to apply on 3 days’ notice.

9. Costs be reserved.

The Court Notes:
10. Any application for costs in respect of, or arising from the Settlement Approval Application will be fixed for hearing on a date after, and subject to the outcome of the Mediation.

The Chubb Joinder Motion will be heard before his Honour Justice Hammerschlag on 29 March 2019 unless otherwise ordered.

The joinder of Chubb, and intended mediation is therefore necessary to resolve all outstanding issues in the proceeding and in relation to the SurfStitch DoCA.

Please continue to check our website for regular updates.

Should you have any queries, please contact a member of our team.

Glenn McGowan QC
Partner & Chief Counsel
Rebecca Di Rago
Lawyer
VIC-Surf-Stitch@gadens.com

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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